Learning Outcomes
This article explains the fundamental fiduciary duty that trustees must not profit from their position. It outlines the general rule that trusteeship is gratuitous and details the specific exceptions where trustees may receive remuneration. After reading this article, you should understand the principles governing trustee payment, including the roles of the trust instrument, statute (particularly the Trustee Act 2000), beneficiary consent, and court orders. This knowledge will assist you in applying the relevant legal principles to SQE1 assessment scenarios involving trustee duties and remuneration.
SQE1 Syllabus
For SQE1, you are required to understand the core principles of fiduciary obligations, particularly the rules surrounding trustee remuneration and the exceptions to the general principle that trustees should not profit from their role. Your understanding should cover:
- The nature of the fiduciary relationship and its obligations.
- The general rule that trustees act gratuitously and the no-profit rule.
- Exceptions permitting trustee remuneration, including provisions in the trust instrument (charging clauses).
- Statutory provisions allowing remuneration (Trustee Act 2000, ss 28-29).
- The ability for beneficiaries to consent to remuneration.
- The court's power to authorise payment.
- The distinction between remuneration and reimbursement for expenses.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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Which principle generally prevents trustees from being paid for their services?
- The duty of care
- The duty to act impartially
- The no-profit rule
- The rule against self-dealing
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Under the Trustee Act 2000, which type of trustee may be entitled to reasonable remuneration even if the trust instrument is silent, provided certain conditions are met?
- A lay trustee acting alone
- A professional trustee where all co-trustees consent in writing
- Any beneficiary acting as a trustee
- A trustee who is also a settlor
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True or False: If all adult beneficiaries with full mental capacity consent, they can authorise payment to a trustee even if the trust instrument forbids remuneration.
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What is the primary source a trustee should check to determine if they are entitled to be paid for their work?
Introduction
A fundamental aspect of trust law is the fiduciary relationship between trustees and beneficiaries. Trustees hold a position of trust and confidence, legally obligated to manage trust assets solely for the beneficiaries' benefit. Central to this relationship are the 'no-conflict' and 'no-profit' rules, designed to ensure trustees act with undivided loyalty. This article focuses on the no-profit rule as it applies to trustee remuneration, exploring the general principle that trusteeship is unpaid and the key exceptions that permit payment. Understanding these rules is essential for advising trustees and beneficiaries and for tackling related SQE1 questions.
The Fiduciary Duty and the No-Profit Rule
Trustees are fiduciaries. This means they owe strict duties of loyalty and good faith to the beneficiaries of the trust. They must avoid situations where their personal interests could potentially conflict with their duties to the trust (the 'no-conflict' rule).
Key Term: Fiduciary A person who holds a legal or ethical relationship of trust with one or more other parties (principals or beneficiaries). The fiduciary must act in the best interests of the principal/beneficiary. Trustees are fiduciaries to the beneficiaries of the trust.
Flowing from the duty of loyalty is the 'no-profit' rule. This fundamental principle dictates that a trustee must not derive any personal advantage or profit from their position as trustee, beyond what is authorised. This includes receiving payment for the time and effort spent administering the trust. The rationale is that allowing personal profit could tempt a trustee to prioritize their own financial gain over the beneficiaries' interests, creating a conflict.
Key Term: No-Profit Rule An equitable principle stating that a fiduciary, such as a trustee, must not make any unauthorised profit from their position.
Therefore, the starting point is that trusteeship is a gratuitous office; trustees are generally expected to act without payment.
Worked Example 1.1
Anya and Ben are trustees of a family trust holding various properties. Ben is a property developer. He identifies a potentially lucrative development opportunity using information he gained solely through his role as trustee. He purchases the adjacent land himself and makes a significant profit. Is Ben entitled to keep this profit?
Answer: No. Ben obtained the opportunity and information because he was a trustee. This represents a profit derived from his fiduciary position. Even if the trust itself could not or would not have pursued the opportunity, Ben is in breach of the no-profit rule (and potentially the no-conflict rule). He must account for the profit to the trust beneficiaries.
Reimbursement vs Remuneration
It is important to distinguish between reimbursement for expenses and remuneration for services.
- Reimbursement: Trustees are entitled to be reimbursed out of the trust fund for all out-of-pocket expenses properly incurred in the administration of the trust (Trustee Act 2000, s 31(1)). This might include travel costs for trustee meetings, postage, or fees for essential professional advice (e.g., legal or valuation fees). Reimbursement is not considered 'profit'.
- Remuneration: This refers to payment for the trustee's time, skill, and effort in acting as a trustee. As noted, this is generally not permitted unless specifically authorised.
Exceptions to the No-Profit Rule: When Can Trustees Be Paid?
Despite the general rule against remuneration, there are recognised exceptions that allow trustees to be paid for their services. These exceptions acknowledge that managing a trust, especially a complex one, requires skill and time, and it may be necessary or desirable to compensate those undertaking the role, particularly professionals.
The primary exceptions are:
- Authorisation by the trust instrument.
- Authorisation by statute (Trustee Act 2000).
- Authorisation by the beneficiaries.
- Authorisation by the court.
Authorisation by the Trust Instrument
The most common way for a trustee to be entitled to remuneration is through an express provision in the trust instrument (the deed or will creating the trust).
Key Term: Charging Clause A provision expressly included in a trust instrument (will or trust deed) that authorises trustees (or specific trustees, like professionals) to charge for their services.
Settlors often include charging clauses, particularly when appointing professional trustees like solicitors or accountants, to ensure they are compensated for their specialized knowledge and time. The scope of the clause must be carefully examined – it might permit all trustees to charge, or only professionals, and may specify the basis of charging (e.g., hourly rates, a percentage of the fund). Courts tend to construe charging clauses strictly.
Authorisation by Statute (Trustee Act 2000)
The Trustee Act 2000 provides statutory authority for certain trustees to charge reasonable remuneration, even if the trust instrument is silent.
- Professional Trustees: Section 29(1) permits a trustee acting in a professional capacity to charge reasonable remuneration for services provided, even if those services could have been provided by a lay trustee. This applies only if all co-trustees agree in writing (s 29(2)). A trustee acts in a professional capacity if they act in the course of a profession or business which involves providing trust administration services (s 28(5)). Solicitors and accountants acting as trustees commonly fall into this category. What constitutes 'reasonable remuneration' depends on the circumstances, including the nature of the services, the trust's complexity, and the trustee's attributes (s 29(3)).
Key Term: Professional Trustee Under the Trustee Act 2000, a trustee acting in the course of a profession or business which includes the provision of services in connection with the management or administration of trusts.
- Trust Corporations: A trust corporation (e.g., the trust department of a bank) acting as a trustee can charge reasonable remuneration under s 29(1) even if it is a sole trustee (s 29(4)). The requirement for co-trustee consent does not apply.
- Lay Trustees: The Act does not provide a general power for lay trustees (those not acting in a professional capacity) to charge remuneration. Their services remain gratuitous unless authorised by the trust instrument, beneficiaries, or the court.
Authorisation by Beneficiaries
Trustees may be paid if all the beneficiaries collectively agree. For this consent to be valid:
- All beneficiaries must be sui juris (of full age – 18 or over – and sound mind).
- They must all freely consent with full knowledge of the material facts.
This method can be impractical, especially with large numbers of beneficiaries or where some are minors or lack capacity.
Authorisation by the Court
The court has an implicit jurisdiction to authorise remuneration for trustees, even where none is provided for elsewhere. It may also increase remuneration fixed by the trust instrument. The court exercises this power cautiously, balancing the principle that trusteeship is gratuitous against the need to ensure the trust is well-administered, potentially requiring payment to secure or retain suitable trustees (Re Duke of Norfolk's Settlement Trusts [1981] Ch 618). This is typically reserved for exceptional circumstances where the duties are particularly onerous.
Worked Example 1.2
Leo and Martha are trustees of a will trust established in 2015. The will contains no charging clause. Leo is a retired teacher (lay trustee). Martha is a solicitor whose firm offers trust administration services (professional trustee). Can they charge for their time?
Answer: Leo, as a lay trustee, cannot charge for his time unless authorised by the beneficiaries (if all sui juris) or the court. Martha, acting in a professional capacity, may be entitled to reasonable remuneration under s 29 TA 2000, but only if Leo (her co-trustee) agrees in writing.
Worked Example 1.3
A trust deed explicitly states "No trustee shall be entitled to any remuneration for acting as trustee under this settlement". Can the professional trustee still charge under the Trustee Act 2000?
Answer: No. The statutory power under s 29 TA 2000 only applies where the trust instrument does not contain provision about remuneration (s 29(5)). An express prohibition in the deed overrides the statutory power. Remuneration would only be possible with beneficiary or court authorisation.
Exam Warning
Remember that the statutory power under s 29 TA 2000 applies only if the trust instrument makes no provision regarding remuneration. Always check the trust document first. Also, note the requirement for written consent from co-trustees for a professional trustee to charge under s 29.
Conclusion
The default position in equity is that trustees must act without payment, reflecting the core fiduciary duty not to profit from the trust. However, practicalities and the need for professional management mean exceptions are necessary. Authorisation can come from the trust instrument itself, statute (primarily the Trustee Act 2000 for professional trustees and trust corporations), unanimous consent from sui juris beneficiaries, or a court order. Understanding these distinct routes to entitlement is essential for advising on trust administration and tackling SQE1 scenarios.
Key Point Checklist
This article has covered the following key knowledge points:
- Trustees are fiduciaries and owe strict duties of loyalty.
- The 'no-profit' rule generally prevents trustees from receiving payment for their services.
- Trustees are entitled to reimbursement for properly incurred expenses.
- Remuneration is distinct from reimbursement and requires specific authorisation.
- Exceptions allowing remuneration exist via the trust instrument (charging clause), statute (Trustee Act 2000), beneficiary consent, or court order.
- The Trustee Act 2000 allows professional trustees and trust corporations to charge reasonable remuneration under specific conditions, often requiring co-trustee consent.
- Lay trustees generally cannot charge unless authorised by the trust instrument, beneficiaries, or the court.
Key Terms and Concepts
- Fiduciary
- No-Profit Rule
- Charging Clause
- Professional Trustee
